Holy HELOC

HELOC, or Home Equity Line of Credit, is an access to funding that turns your home into a piggy bank.

As the Canadian real estate bubble has inflated, many Canadians have turned to the 'home piggy bank' and borrowed like… well… pigs.

How bad is it?

Macleans Magazine had a March 22, 2014 article titled Living Beyond Our Means: Extravagant, reckless, debt-ridden—Canadian consumers have maxed themselves out after a decade-long spending spree. When did we start to be like Americans?

Macleans notes:

At the end of 2013, according to the Office of the Superintendent of Financial Institutions, Canadians had borrowed $225 billion through home-equity lines of credit (HELOCs)—a figure that doesn’t even include loans from credit unions and other lenders. 

$225 Billion!!!

How significant is that figure?

That’s just less than half the US$500 billion Americans owe in HELOC debt. But America is a far larger economy. Down there, HELOCs amount to 2.9% of GDP, and only reached 5% at the peak of the U.S. housing bubble. In Canada, though, that figure is 14%, and is up from 12% in 2012, showing that even though Canada’s economy has grown, the pace at which homeowners tapped their properties for cash grew even faster.

The impact of these numbers can't be understated.

Had Canada's housing bubble been allowed to deflate when the financial crisis originally hit in 2008, the effects would have been very painful.  But all we have done is delay the pain. And in the meantime… the problem has compounded as Canadians have pigged out on debt at emergency level interest rates.

It is going to make the pain far worse when the inevitable happens.

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Bank of Canada: Low Interest Rates Here to Stay?

One of the major themes on this blog (and in real estate) has been interest rates.

Artificially low interest rates to stimulate the economy after the dot com crash of 1999 combined with  emergency level rates after the Great Financial Crisis have created a generation that knows nothing but low, low interest rates.

(Some, like uber Gold bull Jim Sinclair, have predicted interest rates can't be allowed to rise)

And now the new Bank of Canada Governor, Stephen Poloz, has come out and said low interest rates may be here to stay.

Canadians can expect to enjoy relatively cheap borrowing costs for some time to come — even after the economy returns to full capacity and the Bank of Canada starts hiking interest rates, bank governor Stephen Poloz said Thursday.

Poloz says it will likely take until early 2016 before the economy is firing on all cylinders and inflation is back to two per cent. But even when it does Canadians shouldn't expect a sudden increase in interest rates to fight inflation, he told a business group in Saskatoon on Thursday.

"Our economy has room to grow and when we do get home, there is a growing consensus that interest rates will still be lower than we were accustomed to in the past," said Poloz.

"Both because of our shifting demographics and because after such a long period at such unusually low levels, interest rates won't need to move as much to have the same impact on the economy."

Poloz says the new normal will be lower rates than in the past and people should get used to that.

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So CMHC changed the rules and you are require to put 5% down? Ummm… Vancity says nope.

We get it: saving for your first home can be a serious challenge -- especially here in BC. Even a 5% down payment can sometimes feel like an unattainable financial goal.

This video will give you a basic overview of how the Down Payment Helper Mortgage will match the amount you've currently saved for your down payment, up to a maximum of $12,500.

Who says you need 5% down in Vancouver?

(hat tip b5baxter)

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Email: village_whisperer@live.ca
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Vancouver's Average House Price Drops From Last Month's High

As always, Larry Yatkowsky is out with the latest monthly real estate numbers and the average detached house price has withdrawn from last month's record high.

Vancouver’s Detached home average price has dropped to $1,209,542 from $1,361,023.

We thank Larry, again, for the prompt date he provides every month.

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Email: village_whisperer@live.ca
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